For a long time I thought, "maybe landlords are offering some service and not just squeezing people...." But over the past decade it's become clearer and clearer how predatory and parasitic the industry is. Things like this. Things like landlords all using the same pricing algorithms so they can raise rents in unison.
Consider a second-price auction: everyone submits bids, the highest bidder gets the resource, and pays the price submitted by the second-highest bidder. This is incentive-compatible: everyone is incentivized to submit the maximum amount they're willing to pay, no more no less. Does it matter if the resource is being sold by its original owner or a scalper? No. Who gets the resource and how much they pay depends only on which people wanted the resource and how much. The only loser from the scalper's existence is the original owner, because they sold to the scalper too cheaply.
If there are villains in this situation, they aren't those who extract market price: a scarce resource was always going to be sold at market price. If the price is set lower, people will line up in queues and so on, to "burn" an amount of patience and time equal to the price difference in their eyes. Except in a queue all participants end up spending this "burn", so it's strictly more wasteful for society than a market where only the winner pays.
No, the real villains are those who engineer the market so the resource is scarce to begin with. In case of housing: not landlords, but people who vote for laws restricting housing construction. In other words, most homeowners. That's the unpleasant conclusion that people are trying to ignore when they blame landlords, price fixing and so on.
The world is full of goods that share many of the nasty features that the real estate rental market has. For example, it’s not hard to find goods where:
- The value partially derives from the limited supply
- The limited supply is artificially limited by forces that the market cannot correct for (either because law prevents entrance of new competitors, or because would-be competitors are colluding to form a cartel that is deliberately restricting it)
For instance, taxi medallions and diamonds meet these criteria.
What makes rental housing special is other qualities:
- The vast majority of a rental property’s value derives from its proximity to publicly funded resources which the seller did not create themselves. If your tax dollars pay for a new park, the value of that park is vacuumed up by the landlords near the park. (This is what it IS to be an economic rent… thus the name.)
- Demand at the low end is extremely inelastic. People have to live somewhere if their life is entangled with that city. Compare with diamonds or taxi medallions, which you can opt out of.
- In theory, most landlord-tenant relationships operate on a year-long cadence because it mixes flexibility with predictability. The renter doesn’t have to commit their life to staying in a particular city for multiple years just to please some landlord, and the landlord gets to re-auction the rental rights by re-setting the price once a year, keeping up with the going market rate. However, in practice, most renters end up wanting to stay more than one year, and are not mentally or logistically preparing to move. Thus, a substantial price increase is disruptive. You might be tempted to say that the real problem is that the renter went in blind without guarantees about what they were really getting signed up for, and thus a fix could be to secure much longer leases which schedule the rent increases up front. However, as the lease duration goes up, the chances go up that the renter experiences changes in life circumstance that make it impossible or intolerable to continue renting. Barring the creation of a society of debt prisoners, the landlord will inevitably end up enduring lease breaks. Because the switching cost is uniquely high, this creates a fundamental dilemma: people don’t want to move until they do, yet they need to be prepared to move frequently - unless they secure longer leases, which they can’t realistically promise to honor.
So yes, you have cartel behavior and supply distorted by out-of-band zoning restrictions that the market can’t correct, but those are par for the course. The real anger comes from the fact that a place to live isn’t really a “good” in the first place - everybody needs one, and while a roof over your head and good plumbing is worth _something_, the rent you’re paying is driven primarily by a segment of our society _preventing_ you from being able to live close to the public center unless you pay their troll toll. This is where the perceived injustice comes from. When you layer in the Gordian knot of lease duration, rent increase, and the high switching costs, that’s when people really start to hate you.
The no-fee price for the order was $70. Going directly to the restaurant website would have been $38. Item prices were higher, there was a non-fee driver fee, and there was a non-fee order fee. I shudder to think how many more fees there would have been if I were a non-non-fee member.
The only advantage I can see from DoorDash, GrubHub, Postmates et al. is that they provide a directory of places willing to deliver to me. For that, every restaurant suffers from 80% higher delivery prices, or faces the challenge of advertising itself against all the delivery platform giants. I fail to see how anyone but the platforms have benefited from this new normal.
There has to be another name for this than mere rent-seeking or scalping. Extortion?
But this is even more different because they don't even sell the housing to you, they rent it to you. The service they offer is that you don't have to have capital to buy a house and you don't have to maintain it and if you move, you don't have to sell it and pay sales taxes.
Those who benefit are those who own housing at the time of market rate increases. That's just regular investment return and the risk/reward can be directly compared to any other form of investment. Current owner occupiers and current landlords benefit at the time of every increase (even if their capital gains are not immediately realised). And then every household, whether they are owner occupiers or tenants, have to pay in the form of higher capital expense. Landlords simply pass the higher rent through to pay for their higher capital expenses.
You’re forgetting the large contingent of “landlords” sitting on and renting out 1-5 residential properties,
but doing absolutely nothing to them, and buying no new properties, for the remainder of their lifetime,
besides emergency repairs that the tenant demands.
I like this thinking. If you buy a house on the cheap and rent spikes and your profit increases dramatically, you’re not benefiting because somebody will kick in your front door and force you to buy a crazy expensive house.
In your opinion, what is the difference between arbitrage and scalping?
The question is, whose gonna stop them
Also landlords, even the psychotically greedy ones doing things like this article describes, are neither arbitraging nor scalping. That'd be house flippers.
When theyre constantly rent seeking you no longer have prices set by demand, rather supply set by a sustainable rate.
Thats why lawsuits against algorithmic rent setting are occiring. Part of the supply of units is being withheld by the algorithm to inflate prices and get higher ROI.
IN your pov, this is arbitrage. Real arbitrage requires an external factor no one controls.